The Daily Dose: Get Your Head Around Retail

When it comes to economic data, the real numbers to watch this week are the ones from China, set to hit the wires this evening around 9 p.m. EDT. Since the market is finally starting to pay attention the blatantly bad news on China's economic prospects this year, you should probably be on high alert in today's session -- as in, trim some gains, and be on the lookout for selling into the close.

A Quick Hit on Retail

The other data release of interest is tomorrow's U.S. retail-sales report -- I've been getting calls from producers to preview it during prime air time. So, here is the boiled-down skinny on the retail sector, as earnings calls are still ongoing.

The weather in the past few months certainly is not a structural issue, but it adds to the structural problems currently found in specialty retail. In particular, retailers have needed to keep items permanently on sale in order to drive the slightest bit of foot traffic.

For investors interested in the group, you should hope that warmer weather hits us hard and fast, creating opportunities for retailers with the best assortments to finally sell some stuff at full price. In the meantime, I remain especially concerned about American Eagle Outfitters (AEO). On the flip side, my firm Belus Capital Advisors upgraded Dick's Sporting Goods (DKS) ahead of earnings, and we are still favorable on this name. But you don't want exposure to discount retail: no Wal-Mart (WMT), please.

Three Things Going On With J.C. Penney

Shares of J.C. Penney (JCP) have climbed a cool 41% since the company reported earnings on Feb. 26 -- yes, 41%! Stock analysts are tripping over themselves to issue upgrades. I admit that I became a bit more positive on the stock after a weekend of soul-searching, and store-walking, and sitting next to mannequins as I took in the entire store environment.

That said, I have a feeling you may have no idea why the stock is up, other than perhaps surmising that speculators have swooped in to make a quick buck. Here is the truth behind the move in what is now one of the hottest stocks in the market.

1. At the store level, the magnitude of markdowns by department seems to have leveled off. In other words, 40%-to-60%-off signs are holding firm, instead of giving way to 70%-to-80%-off signs. People, moreover, are buying at those initial prices on the weekends.

2. There is a growing perception that J.C. Penney will turn nicely profitable by the 2014 holiday season, benefiting from its stronger sales trend and two-plus years of cost-cutting.

3. Finally, risk is receding that the shares will be penalized by any need for J.C. Penney to raise additional liquidity. As that risk declines, the likelihood rises that J.C. Penney will begin to rebuild its shareholder base with longer-term-oriented investors.